It's no secret the North American market generates about 70% of the revenue in the casual games industry. Nevertheless, casual games have won recognition among people from other countries as well, and those other markets are claiming their rights and attracting the attention of casual game developers and publishers.
Today, the most dynamically developing markets are Western Europe (especially Germany), Asia, and Eastern Europe. Despite starting from nothing in 2003, the Eastern Europe will deliver $10 million in revenues in 2007. Of course, these figures pale in comparison to the approximately $900 million generated in North America, but the truth lies beyond the numbers. Our research shows that the Eastern European market is growing at a terrific rate, increasing approximately 20% each month. As a result, by the end of 2007 the Eastern European market will likely have grown sevenfold compared to 2006.
Furthermore, because people are just now beginning to learn about casual games, the Eastern European market is far from saturated. These figures suggest that in a couple of years the Eastern European market could leave many other European markets behind, providing a good source of additional revenue for any developer or publisher that takes advantage of this emerging market.
How It All Started
To understand the dynamics of the Eastern European market, we need to look at its history and investigate how Eastern European companies came to develop practically 30% of all of the casual games in the international market today.
The story began in 1999. At that time, an economic crisis in Russia affected the retail market for CD games and made it risky and unprofitable to develop large titles. The market was so depressed that a developer received only a few cents for each copy sold. Fortunately, the North American market for small games distributed and sold via the Internet had begun to flourish, providing a promising new outlet for Eastern European companies. Today, these digital offerings are called casual games.
Back then, the downloadable games market was just taking shape. Among the first Eastern European companies to focus on this new niche were Alawar Entertainment, KraiSoft, and Puzzle Lab. After several misfires, these companies started developing casual games Western users enjoyed. It took time to strike the right balance within the game-play, however. Alawar's games, for example, were too hardcore in the beginning. In addition, the company needed to learn about the tastes of Westerners, as the mindset of the two cultures are considerably different. Eventually, the success of this new sector attracted other developers from former USSR countries, and they began to produce casual games for the North American market.
Today, more than 100 casual game companies and development studios located in Eastern Europe are producing titles for the Western market. Yet despite generating almost 30% of all casual game content, developing hundreds of great titles for Westerners, Eastern European game creators—not to mention their casual games—remained all but unknown at home. It was only a few years ago, in fact, that the opportunity to sell these games in Eastern Europe finally took shape.
Why did it take so long for the Eastern European casual games market to emerge? Was it that there was no demand for the content being developed there? No. Ten years ago, people were just as interested in casual games as they are today.
Consider, for example, the game Color Lines. After its release in 1992, it went on to become the number one computer program in practically every accounts department Eastern Europe. And you would have had a hard time finding a Russian who had never heard of Tetris (developed in Russia by Alexey Pazhitnov). But the try-before-you-buy model was difficult to implement in the region, largely because of two problems: a poor Internet infrastructure and the general lack of means for purchasing digital content online.
Waiting on the Spread of Broadband
The poor Internet infrastructure and the slow spread of broadband connectivity were hard to overcome. The majority of people in Russia used a dial-up connection, which made it difficult to download 15MB installation files. Several years ago, it took hours to download a casual game in Russia, and the transfer lagged considerably. While other countries and regions—both inside and outside of Eastern Europe—experienced similar roadblocks, the proliferation of broadband took especially long in Russia.
That's changing today. Currently, the majority of Russian Internet users (concentrated in and around Moscow and in the Northwest Region around St. Petersburg) are using broadband connections—which explains why most Russians who purchase casual games live in either Moscow or St. Petersburg. But as the number of regions using broadband and the Internet grows, the number of casual gamers—and the Eastern European casual games market—will expand as well.
According to government research, in fact, the number of Internet users in Russia will reach 50 million people by 2010, with annual growth rates of about 35% to 40%. As you might guess, that kind of growth is generating a lot of buzz about the Internet and, in turn, fueling a rapid expansion of personal computer ownership. Thus it is no surprise that the Eastern Europe casual games market is developing so rapidly—and there is no reason to believe it will not continue to do so.
Enabling Casual Game Purchases
The second major problem which made it hard to implement the try-before-you-buy model in Eastern Europe was the poor payment infrastructure for online transactions. In the U.S., buying goods via the Internet is simple; therefore, lots of people readily use plastic to pay for games. Eastern Europe, however, has low credit card penetration. Most monthly services are paid for through local bank branches. Thus Eastern European distributors have had to find new methods to collect payments for their games.
For example, we currently work with Softkey, one of the biggest online payment systems, which accepts more than 20 methods of payment, including credit cards and electronic cash such as WebMoney. Another popular means of paying for online purchases in Eastern Europe is through text messaging: The buyer sends an SMS message from a cell phone to purchase a song, picture or other mobile content, and at the same time receives the game for free. According to Alawar's research, about 65% of all casual game sales in Eastern Europe today comes from this method of registration, while 17% comes from bank transactions. Credit cards and electronic money make up just 6% and 10%, respectively.
Not all portals and websites report the same purchasing trends, however. For example, NevoSoft says more than 90% of its game registrations come from SMS messages. Regardless of which method customers might prefer, the point is that they can now obtain the full version of a game through a variety of means, reducing the impact of low credit card penetration.
While convenient and less expensive for customers, revenues earned through SMS registrations are much lower than in Western countries—and for a variety of reasons. For starters, casual games cost less in Eastern Europe (five dollars compared to almost $20 in Western territories). In addition, severe taxation further eats into revenues. As a final blow to casual game developers and publishers, mobile operators charge an average of 50% of the price of the game for using their services.
Advice for Developers and Publishers
If you are interested in offering your games to the Eastern European market, there are a number of things you should keep in mind.
First, you should note that Eastern European casual gamers differ from Americans. Whereas most American casual gamers are females age 35 and older, many of whom are housewives, the majority of the people who purchase games in Eastern Europe are office workers such as accountants, secretaries and office managers. They also buy games for their children and grandchildren (if grandpa and grandma are keeping up with the times). As throughout the rest of the world, the majority of people who buy casual games are women, but in Eastern Europe, they're younger, ranging in age from 18 to 35, with 25 being the peak. Men ages 21 to 37 also regularly buy games. The skew toward a younger demographic is not surprising considering how few elderly people in Eastern Europe are active computer and Internet users.
In addition to age, you should also take into account the differences in the way people of various countries think, inasmuch as the casual games popular in Eastern Europe and the U.S. are poles apart. Last year in Eastern Europe, for example, the most popular games were Treasures of Montezuma, Da Vinci's Secret, Tank-o-Box, Mahjongg Artifacts, Birds on a Wire, Mysteryville, Stand o' Food, Snowy: Lunch Rush, Wonderlines and Hyperballoid. (The latter, a Breakout game, is an interesting inclusion. The Magic Ball series, a line of 3D games which has sold more than one million copies worldwide, isn't well-liked in Russia, but Hyperballoid, a 2D offering, has been on the Top 10 list at www.alawar.ru for more than two years.) Russians seem to prefer action puzzle games and logic titles, so match-three games and hidden object releases are the most popular.
Lastly, price is another significant factor to consider as you contemplate entering the Eastern European casual games market. Casual games in Russia cost 140 rubles, which is approximately five U.S. dollars—or four times less than most casual games cost in America. All of the major websites in Eastern Europe agreed on this price last year after having charged just three dollars per game in the two years prior to that. The good news is that the increase in price didn’t negatively influence sales; in fact, transactions continued to grow after the price went up. Meanwhile, the cost of other entertainment continues to climb as well, and some believe that just as CDs, DVDs, movies tickets, and, retail computer games have seen a steep increase in price over recent months, similar growth can be expected in the casual games market—with another jump in prices likely within the next year.
In further good news, conversion rates are significantly higher in Eastern Europe. In general, in the Western market one out of 100 people downloading a casual game will actually purchase the offering. The conversion rate in Eastern Europe for top selling games, meanwhile, starts at four percent and goes as high as 15%. Early on, when most casual games were introduced in English, the conversion rates in Eastern Europe were not nearly that high. However, now that virtually all games are localized before being introduced to the market, conversion rates have climbed significantly.
Of course, consumers in Eastern Europe are still learning about casual games, and the market itself is just now beginning to take shape. As a result, conditions are ripe for releasing casual games into the region. After all, the best time to establish a foothold in a market is when it is developing dynamically and you can help write the rules of the game.
Andrey Postnikov is the director of publishing for Alawar Entertainment, one of the world’s leading publishers of casual games. Since he joined the company in 2002, Alawar has published more than 100 casual games and established partnerships with all of the leading online distributors. In addition to working with portals and online distributors, Andrey has served as a game producer. The Magic Ball series, one of the best 3D breakout games available, was produced and published under his direct guidance. Andrey graduated from Novosibirsk State Technical University, Aircraft Faculty, with a Master’s degree in Aircraft. He can be reached at andrew@alawar.com.
